The State Fiscal Situation NLC March 15, 2011 Scott Pattison Executive Director National Association of State Budget Officers 444 North Capitol Street,

The State Fiscal Situation

NLC

March 15, 2011

Scott PattisonExecutive Director

National Association of State Budget Officers

444 North Capitol Street, NW, Suite 642 • Washington, DC 20001 • (202) 624-5382 • www.nasbo.org

NASBO

MAJOR CHALLENGES TO STATE BUDGETS: Fiscal 2011 and 2012

Spending Demands and Some Revenue Growth Unlikely to return to 2008

Federal Government Health Care Cost Pressures

Medicaid 6.1 percent growth estimate for FY2011 Wind Down of Recovery Funds

$151 billion in flexible funding ends in June FY2011 Dealing with Long Term Liabilities

Tough choices, not defaults Health Care Reform Implementation

NASBO

Health Care Costs Key

“Containing growth in our health care costs… is something we absolutely need to do, because it is unsustainable at the rate that it’s been growing,’’ said Jay Gonzalez, Patrick’s budget chief.

“There are going to be some hard decisions.’’

Boston Globe 1/3/11

3

NASBO

Negative Spending Two Years in a Row, Increase in 2011

-10

-8

-6

-4

-2

0

2

4

6

8

10

12

%

General Fund Expenditure Growth (%)

*33-year historical average rate of growth is 5.7 percent *Fiscal ‘11 numbers are enacted Source: NASBO Fall 2010 Fiscal Survey of States

* Average

The New Long-Term 10 year Normal?

NASBO

Revenue Not Yet Pre-Recession

InBillions

* FY 2007, 2008, and 2009 are actual. FY 2010 is estimated and FY 2011 is proposed

NASBO

Budget Cuts Made After the Budget Passed

($ millions)

*FY 2011 mid-year budget cuts are ongoing

Mid-Year Budget Cuts Continue

NASBO 7

The Cliff: Temporary Federal Aid to States (FY ’11 totals include both ARRA & Education Jobs Funds)

Source: Recovery Act data come from GAO Report to Congress, September 2010

In Billions

Fiscal Year

NASBO 8

Additional Aid from Federal Government?

“We have no expectation or intention to get involved in state and local finance.” Federal Reserve Chairman Ben Bernanke, January 7, 2011

“I think most of the solutions for state government will have to come from state government.” Senate Majority Leader Harry Reid, January 17, 2011

“We are not interested in a bailout.” House Budget Committee Chairman Paul Ryan, January 6, 2011

NASBO 9

Proposal: Federal Budget Cuts

HR 1 would reduce major discretionary program funding to states by $20.2 billion, or 10.7%

Cuts to major programs would be widespread with double digit declines from a number of agencies HUD – 10.4% HHS – 12.0% DHS – 14.3% DOL – 42.9%

DOT (5.0%) and Dept. of Ed (8.0%) would see cuts, but below 10% Clean Water State Revolving Fund and CDBG are cut more than 60%

Analysis of HR 1 performed by Federal Funds Information for States

NASBO 10

Spending by Funding Source(Percentage)

General Funds38.1%

Federal Funds34.7%

Other State Funds24.5% Bonds

2.7%

Total State Expenditures By Funding Source, Estimated Fiscal 2010

Source: NASBO 2009 State Expenditure Report

NASBO 11

General Fund: Medicaid & Education Over 63%

Elementary & Secondary Education

35.7%

Higher Education12.1%

Medicaid15.4%

Public Assistance1.9%

Corrections7.2%

Transportation0.8%

All Other27.0%

General Fund Expenditures by Function, Estimated Fiscal 2010

Source: NASBO 2009 State Expenditure Report

NASBO

State Budget Cycle

12

NASBO

Tough Decisions!Revenue $1 billion

Requests Medicaid $550 million K-12 $450 million

Higher ed $250 million Prisons $50 million Court cases $20 million Other $100 million

$420 million

Decisions Medicaid $500 million K-12 $400 million Already $900 million

spent

+++

Go back, cut Medicaid to $480, K-12 to $390

$100 million available becomes $130 million

13

NASBO 14

State Fiscal Outlook

Austere state budgets for at least the next several years Spending pressures; Revenue growth

Health care reform will have an impact on state finances

Limited federal funds

Tough competition for general funds

NASBO 15

Impact

MOE, Flexibility

Managing the Declines

Show Effectiveness

Yes, everything is still political…

Shared Sacrifice?

NASBO 16

www.nasbo.org

Scott Pattison

(202) 624-8804

[email protected]